XNYS:HPY Heartland Payment Systems Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________ 
FORM 10-Q
__________________________________ 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File No. 001-32594
______________________________________________ 
HEARTLAND PAYMENT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
22-3755714
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
90 Nassau Street, Princeton, New Jersey 08542
(Address of principal executive offices) (Zip Code)
(609) 683-3831
(Registrant’s telephone number, including area code)
____________________________________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  YES    o  NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  YES    o  NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
  
Accelerated filer
 
o
 
 
 
 
 
 
 
Non-accelerated filer
 
o  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    o  YES    x  NO
As of August 1, 2012, there were 38,892,203 shares of the registrant’s Common Stock, $0.001 par value, outstanding.
 



INDEX
 
 
 
Page
 
 
 
 
Item 1.

 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
Item 5.
 
 
 
Item 6.



PART I. FINANCIAL INFORMATION
Item 1.
Condensed Financial Statements
Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(unaudited)
 
June 30,
2012
 
December 31,
2011
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
42,951

 
$
40,301

Funds held for payroll customers
48,859

 
42,511

Receivables, net
180,096

 
176,535

Investments held to maturity
3,711

 
2,505

Inventory
11,168

 
11,492

Prepaid expenses
8,787

 
9,660

Current tax assets
4,091

 

Current deferred tax assets, net
6,875

 
6,746

Total current assets
306,538

 
289,750

Capitalized customer acquisition costs, net
56,223

 
55,014

Property and equipment, net
120,437

 
115,579

Goodwill
118,610

 
103,399

Intangible assets, net
37,359

 
32,498

Deposits and other assets, net
738

 
681

Total assets
$
639,905

 
$
596,921

 
 
 
 
Liabilities and Equity
 
 
 
Current liabilities:
 
 
 
Due to sponsor banks
$
54,451

 
$
63,881

Accounts payable
56,401

 
47,373

Deposits held for payroll customers
48,859

 
42,511

Current portion of borrowings
43,502

 
15,003

Current portion of accrued buyout liability
9,232

 
8,104

Processing liabilities and loss reserves
37,229

 
30,689

Accrued expenses and other liabilities
41,493

 
50,884

Current tax liabilities

 
1,408

Total current liabilities
291,167

 
259,853

Deferred tax liabilities, net
26,296

 
21,643

Reserve for unrecognized tax benefits
2,190

 
1,819

Long-term portion of borrowings
60,000

 
70,000

Long-term portion of accrued buyout liability
24,218

 
23,554

Total liabilities
403,871

 
376,869

Commitments and contingencies (Note 11)

 

 
 
 
 
Equity
 
 
 
Common stock, $0.001 par value, 100,000,000 shares authorized, 40,742,488 and 39,626,846 shares
issued at June 30, 2012 and December 31, 2011; 38,806,159 and 38,847,957 outstanding at
June 30, 2012 and December 31, 2011
41

 
39

Additional paid-in capital
229,691

 
207,643

Accumulated other comprehensive loss
(699
)
 
(680
)
Retained earnings
56,111

 
29,236

Treasury stock, at cost (1,936,329 and 778,889 shares at June 30, 2012 and December 31, 2011)
(50,000
)
 
(16,828
)
Total stockholders’ equity
235,144

 
219,410

Noncontrolling interests
890

 
642

Total equity
236,034

 
220,052

Total liabilities and equity
$
639,905

 
$
596,921


See accompanying notes to condensed consolidated financial statements.

1


Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Income and Comprehensive Income
(In thousands, except per share data)
(unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30
 
2012
 
2011
 
2012
 
2011
Total revenues
$
518,521

 
$
525,977

 
$
989,006

 
$
993,623

Costs of services:
 
 
 
 
 
 
 
Interchange
330,742

 
365,207

 
628,690

 
686,006

Dues, assessments and fees
52,505

 
38,551

 
96,373

 
72,701

Processing and servicing
57,188

 
55,359

 
113,910

 
107,915

Customer acquisition costs
11,263

 
12,130

 
22,699

 
23,788

Depreciation and amortization
4,506

 
3,701

 
8,892

 
7,576

Total costs of services
456,204

 
474,948

 
870,564

 
897,986

General and administrative
32,584

 
29,377

 
65,466

 
59,423

Total expenses
488,788

 
504,325

 
936,030

 
957,409

Income from operations
29,733

 
21,652

 
52,976

 
36,214

Other income (expense):
 
 
 
 
 
 
 
Interest income
45

 
41

 
160

 
82

Interest expense
(756
)
 
(1,116
)
 
(1,606
)
 
(2,308
)
Provision for processing system intrusion costs
(81
)
 
(372
)
 
(238
)
 
(675
)
Other, net
(4
)
 
(308
)
 
(4
)
 
(745
)
Total other income (expense)
(796
)
 
(1,755
)
 
(1,688
)
 
(3,646
)
Income before income taxes
28,937

 
19,897

 
51,288

 
32,568

Provision for income taxes
10,975

 
7,505

 
19,474

 
12,314

Net income
17,962

 
12,392

 
31,814

 
20,254

Less: Net income attributable to noncontrolling interests
161

 
134

 
259

 
181

Net income attributable to Heartland
$
17,801

 
$
12,258

 
$
31,555

 
$
20,073

 
 
 
 
 
 
 
 
Net income
$
17,962

 
$
12,392

 
$
31,814

 
$
20,254

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gains on investments, net of income tax of $2, $0, $10
and $2
4

 

 
15

 
5

Unrealized losses on derivative financial instruments
(3
)
 
(536
)
 
(9
)
 
(582
)
Foreign currency translation adjustment
(267
)
 
97

 
(36
)
 
453

Comprehensive income
17,696

 
11,953

 
31,784

 
20,130

Less: Comprehensive income attributable to noncontrolling interests
81

 
163

 
248

 
317

Comprehensive income attributable to Heartland
$
17,615

 
$
11,790

 
$
31,536

 
$
19,813

 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.46

 
$
0.32

 
$
0.81

 
$
0.52

Diluted
$
0.44

 
$
0.31

 
$
0.78

 
$
0.50

Weighted average number of common
     shares outstanding:
 
 
 
 
 
 
 
Basic
38,844

 
38,792

 
38,840

 
38,625

Diluted
40,448

 
40,128

 
40,504

 
39,934


See accompanying notes to condensed consolidated financial statements.

2


Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Equity
(In thousands)
(unaudited)
 
Heartland Stockholders’ Equity
 
 
 
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
(Accumulated
Deficit)
Retained
Earnings
 
Treasury Stock
 
Noncontrolling
Minority
Interests
 
Total
Equity
 
Shares
 
Amount
 
Six Months Ended June 30, 2011:
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2011
38,415

 
$
38

 
$
185,689

 
$
37

 
$
(8,471
)
 
$

 
$
301

 
$
177,594

Issuance of common
     stock– options
     exercised
698

 
1

 
5,733

 

 

 

 

 
5,734

Issuance of common
      stock – RSU's vested
59

 

 
(518
)
 

 

 

 

 
(518
)
Excess tax benefit on
     stock options exercised

 

 
2,537

 

 

 

 

 
2,537

Share-based compensation

 

 
3,700

 

 

 

 

 
3,700

 Other comprehensive (loss) income

 

 

 
(260
)
 

 

 
136

 
(124
)
Dividends on common
     stock

 

 

 

 
(3,095
)
 

 

 
(3,095
)
Net income for the period

 

 

 

 
20,073

 

 
181

 
20,254

Balance June 30, 2011
39,172

 
$
39

 
$
197,141

 
$
(223
)
 
$
8,507

 
$

 
$
618

 
$
206,082

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2012:
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2012
38,848

 
$
39

 
$
207,643

 
$
(680
)
 
$
29,236

 
$
(16,828
)
 
$
642

 
$
220,052

Issuance of common
     stock – options
     exercised
1,038

 
2

 
11,838

 

 

 

 

 
11,840

Issuance of common
      stock – RSU's vested
77

 

 
(1,247
)
 

 

 

 

 
(1,247
)
Excess tax benefit on
     stock options exercised


 

 
4,556

 

 

 

 

 
4,556

Repurchase of common
     stock
(1,157
)
 

 

 

 

 
(33,172
)
 

 
(33,172
)
Share-based compensation

 

 
6,901

 

 

 

 

 
6,901

 Other comprehensive loss

 

 

 
(19
)
 

 

 
(11
)
 
(30
)
Dividends on common
     stock

 

 

 

 
(4,680
)
 

 

 
(4,680
)
Net income for the period

 

 

 

 
31,555

 

 
259

 
31,814

Balance June 30, 2012
38,806

 
$
41

 
$
229,691

 
$
(699
)
 
$
56,111

 
$
(50,000
)
 
$
890

 
$
236,034


See accompanying notes to condensed consolidated financial statements.

3


Heartland Payment Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flow
(In thousands)
(unaudited) 
 
Six Months Ended June 30,
 
2012
 
2011
Cash flows from operating activities
 
 
 
Net income
$
31,814

 
$
20,254

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

Amortization of capitalized customer acquisition costs
22,509

 
24,400

Other depreciation and amortization
14,714

 
14,023

Addition to loss reserves
1,195

 
3,381

Provision for doubtful receivables
390

 
1,270

Share-based compensation
6,901

 
3,700

Deferred taxes
4,522

 
2,253

Exit costs for service center

 
771

Other
29

 
83

Changes in operating assets and liabilities:
 
 
 
Increase in receivables
(2,324
)
 
(17,561
)
Decrease in inventory
383

 
1,093

Payment of signing bonuses, net
(15,461
)
 
(14,161
)
Increase in capitalized customer acquisition costs
(8,257
)
 
(6,942
)
Decrease (increase) in prepaid expenses
886

 
(2,750
)
(Increase) decrease in current tax assets
(945
)
 
15,758

Increase in deposits and other assets
(53
)
 
(295
)
Excess tax benefits on employee share-based compensation
(4,556
)
 
(2,537
)
Increase in reserve for unrecognized tax benefits
371

 
273

(Decrease) increase in due to sponsor bank
(9,430
)
 
7,512

Increase in accounts payable
9,035

 
666

(Decrease) increase in accrued expenses and other liabilities
(11,457
)
 
1,723

Increase in processing liabilities and loss reserves
5,263

 
2,025

Payouts of accrued buyout liability
(6,655
)
 
(7,276
)
Increase in accrued buyout liability
8,447

 
6,330

Net cash provided by operating activities
47,321

 
53,993

Cash flows from investing activities
 
 
 
Purchase of investments held to maturity
(1,865
)
 
(2,178
)
Maturities of investments held to maturity
676

 
1,282

(Increase) decrease in funds held for payroll customers
(6,323
)
 
1,818

Increase (decrease) in deposits held for payroll customers
6,348

 
(1,812
)
Acquisition of business, net of cash acquired
(23,682
)
 
(7,598
)
Purchases of property and equipment
(16,420
)
 
(20,365
)
Net cash used in investing activities
(41,266
)
 
(28,853
)
Cash flows from financing activities
 
 
 
Proceeds from borrowings
26,000

 

Principal payments on borrowings
(7,502
)
 
(30,778
)
Proceeds from exercise of stock options
11,840

 
5,733

Excess tax benefits on employee share-based compensation
4,556

 
2,537

Repurchases of common stock
(33,586
)
 

Dividends paid on common stock
(4,680
)
 
(3,095
)
Net cash used in financing activities
(3,372
)
 
(25,603
)
 
 
 
 
Net increase (decrease) in cash
2,683

 
(463
)
Effect of exchange rates on cash
(33
)
 
37

Cash at beginning of year
40,301

 
41,729

Cash at end of period
$
42,951

 
$
41,303

 
 
 
 
Supplemental cash flow information:
 
 
 
Cash paid (received) during the period for:
 
 
 
Interest
$
1,488

 
$
2,132

Income taxes
15,457

 
(5,972
)
See accompanying notes to condensed consolidated financial statements.

4


Heartland Payment Systems, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(unaudited)
1. Organization and Operations
Basis of Financial Statement Presentation— The accompanying condensed consolidated financial statements include those of Heartland Payment Systems, Inc. (the “Company,” “we,” “us,” or “our”) and its wholly-owned subsidiaries, Heartland Payroll Company (“HPC”), Debitek, Inc. (“Debitek”) and Heartland Acquisition LLC (“Network Services”), and its 70% owned subsidiary Collective POS Solutions Ltd. (“CPOS”). The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. All intercompany balances and transactions with the Company's subsidiaries have been eliminated upon consolidation. Certain amounts relating to 2011 financial information have been reclassified to conform with the current year presentation.

The accompanying condensed consolidated financial statements are unaudited. In the opinion of the Company's management, the unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of the Company's financial position at June 30, 2012, its results of operations, changes in stockholders’ equity and cash flows for the six months ended June 30, 2012 and 2011. Results of operations reported for interim periods are not necessarily indicative of the results to be expected for the year ending December 31, 2012. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2011. The December 31, 2011 condensed consolidated balance sheet was derived from the audited 2011 consolidated financial statements.

In the Consolidated Statements of Cash Flow, the prior period reflects a correction to the presentation of the reconciliation of net income to net cash provided by operating activities. Previously, the reconciliation of net income to net cash provided by operating activities started with net income attributable to Heartland, and net income attributable to noncontrolling interests was included as a reconciling item. As restated, the reconciliation of net income to net cash provided by operating activities starts with net income which includes noncontrolling interests. This change had no effect on reported net cash provided by operating activities.

Business Description—The Company’s principal business is to provide payment processing services related to bankcard transactions for merchants throughout the United States and Canada. In addition, the Company provides certain other merchant services, including the sale and rental of terminal equipment, loyalty and gift card processing, and the sale of terminal supplies. The Company provides K to 12 school solutions in the United States including school nutrition and point-of-sale solutions. HPC provides payroll and related tax filing services throughout the United States. Debitek provides prepaid card and stored-value card solutions throughout the United States and Canada. The Company and Debitek also provide campus payment solutions throughout the United States and Canada. CPOS is a Canadian provider of payment processing services and secure point-of-sale solutions.
Over 73% of the Company's revenue is derived from processing and settling Visa and MasterCard bankcard transactions for its merchant customers. Because the Company is not a ''member bank'' as defined by Visa and MasterCard, in order to process and settle these bankcard transactions for its merchants, the Company has entered into sponsorship agreements with member banks. Visa and MasterCard rules restrict the Company from performing funds settlement or accessing merchant settlement funds and require that these funds be in the possession of the member bank until the merchant is funded. A sponsorship agreement permits the Company to route Visa and MasterCard bankcard transactions under the member bank's control and identification numbers to clear credit bankcard transactions through Visa and MasterCard. A sponsorship agreement also enables the Company to settle funds between cardholders and merchants by delivering funding files to the member bank, which in turn transfers settlement funds to the merchants' bank accounts. These restrictions place the settlement assets and obligations under the control of the member bank.
The sponsorship agreements with the member banks require, among other things, that the Company abide by the by-laws and regulations of the Visa and MasterCard networks, and certain of the Sponsor banks require a certificate of deposit or a cash balance in a deposit account. If the Company breaches a sponsorship agreement, the Sponsor banks may terminate the agreement and, under the terms of the agreement, the Company would have 180 days to identify an alternative Sponsor bank. The Company is dependent on its Sponsor banks, Visa and MasterCard for notification of any compliance breaches. As of June 30, 2012, the Company has not been notified of any such issues by its Sponsor banks, Visa or MasterCard.

At June 30, 2012, the Company is party to five bank sponsorship agreements.

5

Table of Contents            
Heartland Payment Systems, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements—(Continued)
(unaudited)

The Company entered into a sponsorship agreement with KeyBank, National Association on April 1, 1999 and on December 22, 2011, the Company entered into an amendment agreement that extended the expiration date of that agreement to October 1, 2012.

In 2007, the Company entered into a sponsorship agreement with Heartland Bank, an unrelated third party. The agreement with Heartland Bank has been renewed through September 2013.

In November 2009, the Company entered into a sponsorship agreement with The Bancorp Bank to sponsor the Company's large national and mid-tier merchants processed by Network Services. The agreement with The Bancorp Bank expires in November 2014.

On March 24, 2011, the Company entered into a sponsorship agreement with Barclays Bank Delaware to sponsor certain of the Company's large national merchants processed by Network Services. The agreement with Barclays Bank Delaware expires in March 2016 with an automatic one year renewal.

On February 8, 2012, the Company entered into a sponsorship agreement with Wells Fargo Bank, N.A. ("WFB"). The WFB sponsorship agreement will be in effect until February 8, 2016 and will automatically renew for successive three year periods unless either party provides six months' written notice of nonrenewal to the other party. Processing activity associated with the WFB sponsorship has not yet commenced.

Following is a breakout of the Company’s total Visa and MasterCard settled bankcard processing volume for the month ending June 30, 2012 by percentage processed under its individual bank sponsorship agreements:
Sponsor Bank
% of June 2012
Bankcard Processing
Volume
KeyBank, National Association
64%
The Bancorp Bank
15%
Barclays Bank Delaware
13%
Heartland Bank
8%

Processing System IntrusionOn January 20, 2009, the Company publicly announced the discovery of a criminal
breach of its payment systems environment (the “Processing System Intrusion”). The Processing System Intrusion involved
malicious software that appears to have been used to collect in-transit, unencrypted payment card data while it was being
processed by the Company during the transaction authorization process. The Company believes the breach did not extend
beyond 2008.

Since its announcement of the Processing System Intrusion on January 20, 2009 and through June 30, 2012, the
Company has expensed a total of $147.3 million, before reducing those charges by $31.2 million of total insurance recoveries. The majority of the total charges of approximately $114.7 million relates to settlements of claims. Approximately $32.6 million of the total charges were for legal fees and costs the Company incurred for investigations, defending various claims and
actions, remedial actions and crisis management services.
    
During the three months ended June 30, 2012, the Company incurred approximately $0.1 million, or less than one cent per share, for legal fees and costs it incurred related to the Processing System Intrusion. During the three months ended
June 30, 2011, the Company expensed approximately $0.4 million, or less than one cent per share, related to the Processing System Intrusion. During the six months ended June 30, 2012, the Company incurred approximately $0.2 million, or less than one cent per share, for legal fees and costs it incurred related to the Processing System Intrusion. During the six months ended June 30, 2011, the Company expensed approximately $0.7 million, or $0.01 per share, related to the Processing System Intrusion.

2. Summary of Significant Accounting Policies
Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates include, among other things, the accrued buyout liability, capitalized customer acquisition costs, goodwill, loss reserves, certain accounts payable and

6

Table of Contents            
Heartland Payment Systems, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements—(Continued)
(unaudited)

accrued expenses and certain tax assets and liabilities as well as the related valuation allowances, if any. Actual results could differ from those estimates.
Cash and Cash Equivalents—At June 30, 2012, cash included approximately $29.0 million of processing-related cash in transit and collateral, compared to approximately $28.0 million of processing-related cash in transit and collateral at December 31, 2011.
Receivables—Receivables are stated net of allowance for doubtful accounts. The Company estimates its allowance based on experience with its merchants, customers, and sales force and its judgment as to the likelihood of their ultimate payment. The Company also considers collection experience and makes estimates regarding collectability based on trends in aging. Historically, the Company has not experienced significant charge offs for its merchant receivables.
The Company's primary receivables are from its bankcard processing merchants. These receivables result from the Company's practice of advancing interchange fees to most of its small and mid-sized merchants (referred to as Small and Midsized Enterprises, or “SME”) during the month and collecting those fees at the beginning of the following month, as well as from transaction fees the Company charges its merchants for processing transactions. The Company does not advance interchange fees to its Network Services Merchants.

Generally, the Company uses cash available for investment to fund these advances to SME merchants; when available cash has been expended, the Company directs its sponsor banks to make these advances, thus generating a payable to the sponsor banks. We pay our sponsor banks the prime rate on these payables. At June 30, 2012, the Company used $48.5 million of its available cash to fund merchant advances and at December 31, 2011, the Company used $40.0 million of its cash to fund merchant advances. The amount due to sponsor banks for funding advances was $43.1 million at June 30, 2012 and $45.2 million at December 31, 2011. The payable to sponsor banks is repaid at the beginning of the following month out of the fees the Company collects from its merchants. Receivables from merchants also include receivables from the sale of point of sale terminal equipment. Unlike the SME merchants, Network Services Merchants are invoiced monthly, on payment terms of 30 days net from date of invoicing.

Receivables also include amounts resulting from the pre-funding of Discover and American Express transactions to some of the Company's merchants and are due from the related bankcard networks. These amounts are recovered the next business day from the date of processing the transaction.

Receivables also include amounts resulting from the sale, installation, training and repair of payment system hardware and software for prepaid card and stored-value card payment systems, campus payment solutions, and Heartland School Solutions. These receivables are mostly invoiced on terms of 30 days net from date of invoicing.

Investments and Funds Held for Payroll Customers—Investments, including those carried on the Condensed Consolidated Balance Sheet as Funds held for payroll customers, consist primarily of fixed income bond funds and certificates of deposit. Funds held for payroll customers also include overnight bank deposits. The majority of investments carried in Funds held for payroll customers are available-for-sale and recorded at fair value based on quoted market prices. Certificates of deposit are classified as held to maturity and recorded at cost. In the event of a sale, cost is determined on a specific identification basis. At June 30, 2012, Funds held for payroll customers included cash and cash equivalents of $47.7 million and investments available for sale of $1.2 million.

Capitalized Customer Acquisition Costs, net—Capitalized customer acquisition costs consist of (1) up-front signing bonus payments made to Relationship Managers and sales managers (the Company's sales force) for the establishment of new merchant relationships, and (2) a deferred acquisition cost representing the estimated cost of buying out the commissions of vested sales employees. Capitalized customer acquisition costs represent incremental, direct customer acquisition costs that are recoverable through gross margins associated with merchant contracts. The capitalized customer acquisition costs are amortized using a method which approximates a proportional revenue approach over the initial three-year term of the merchant contract.

The up-front signing bonus paid for new SME bankcard, payroll and loyalty marketing accounts is based on the estimated gross margin for the first year of the merchant contract. The signing bonus, amount capitalized, and related amortization are adjusted after one year to reflect the actual gross margin generated by the merchant contract during that year. The deferred customer acquisition cost asset is accrued over the first year of SME bankcard merchant processing, consistent with the build-up in the accrued buyout liability, as described below. Beginning in June 2012, Relationship Managers and sales

7

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Heartland Payment Systems, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements—(Continued)
(unaudited)

managers earn portfolio equity on their newly installed payroll and loyalty marketing merchant accounts based on the residual commissions they earn on those accounts. The accrued buyout liability and deferred acquisition cost asset will be developed the same as the SME bankcard merchant portfolio equity.

Management evaluates the capitalized customer acquisition costs for impairment by comparing, on a pooled basis by vintage month of origination, the expected future net cash flows from underlying merchant relationships to the carrying amount of the capitalized customer acquisition costs. If the estimated future net cash flows are lower than the recorded carrying amount, indicating an impairment of the value of the capitalized customer acquisition costs, the impairment loss will be charged to operations. The Company believes that no impairment has occurred as of June 30, 2012.

Processing Liabilities and Loss Reserves—The majority of the Company's processing liabilities include funds in transit associated with bankcard and check processing. In addition, the Company maintains merchant deposits to offset potential liabilities from merchant chargeback processing. Disputes between a cardholder and a merchant periodically arise due to the cardholder's dissatisfaction with merchandise quality or the merchant's service, and the disputes may not always be resolved in the merchant's favor. In some of these cases, the transaction is ''charged back'' to the merchant and the purchase price is refunded to the cardholder by the credit card-issuing institution. If the merchant is unable to fund the refund, the Company is liable for the full amount of the transaction. The Company's obligation to stand ready to perform is minimal. The Company maintains a deposit or the pledge of a letter of credit from certain merchants as an offset to potential contingent liabilities that are the responsibility of such merchants. The Company evaluates its ultimate risk and records an estimate of potential loss for chargebacks related to merchant fraud based upon an assessment of actual historical fraud loss rates compared to recent bankcard processing volume levels. The Company believes that the liability recorded as loss reserves approximates fair value.

Accrued Buyout Liability—The Company's Relationship Managers and sales managers are paid residual commissions based on the gross margin generated by monthly SME merchant processing activity. The Company has the right, but not the obligation, to buy out some or all of these commissions, and intends to do so periodically. Such purchases of the commissions are at a fixed multiple of the last twelve months' commissions. Because of the Company's intent and ability to execute purchases of the residual commissions, and the mutual understanding between the Company and the Relationship Managers and sales managers, the Company has accounted for this deferred compensation arrangement pursuant to the substantive nature of the plan. The Company therefore records the amount that it would have to pay (the ''settlement cost'') to buy out non-servicing related commissions in their entirety from vested Relationship Managers and sales managers, and an accrual, based on their progress towards vesting, for those unvested Relationship Managers and sales managers who are expected to vest in the future. As noted above, as the liability increases over the first year of a SME merchant contract, the Company also records a related deferred acquisition cost asset for currently vested Relationship Managers and sales managers. The accrued buyout liability associated with unvested Relationship Managers and sales managers is not included in the deferred acquisition cost asset since future services are required in order to vest. Subsequent changes in the estimated accrued buyout liability due to merchant attrition, same-store sales growth and changes in gross margin are included in the same income statement caption as customer acquisition costs expense.

Beginning in June 2012, Relationship Managers and sales managers earn portfolio equity on their newly installed payroll and loyalty marketing merchant accounts based on the residual commissions they earn on those accounts. The accrued buyout liability and deferred acquisition cost asset will be accrued identically as the SME bankcard merchant portfolio equity.

The accrued buyout liability is based on merchants under contract at the balance sheet date, the gross margin generated by those merchants over the prior twelve months, and the contractual buyout multiple. The liability related to a new merchant is therefore zero when the merchant is installed, and increases over the twelve months following the installation date. The same procedure is applied to unvested commissions over the expected vesting period, but is further adjusted to reflect the Company's estimate that 31% of unvested Relationship Managers and sales managers become vested.

The classification of the accrued buyout liability between current and non-current liabilities on the Condensed Consolidated Balance Sheet is based upon the Company's estimate of the amount of the accrued buyout liability that it reasonably expects to pay over the next twelve months. This estimate is developed by calculating the cumulative annual average percentage that total historical buyout payments represent of the accrued buyout liability. That percentage is applied to the period-end accrued buyout liability to determine the current portion.

Revenue—Revenues are mainly comprised of gross processing revenue, payroll processing revenue and equipment-

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Heartland Payment Systems, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements—(Continued)
(unaudited)

related income. Gross processing revenue primarily consists of discount fees, per-transaction fees and periodic fees (primarily monthly) from the processing of Visa, MasterCard, American Express and Discover bankcard transactions for merchants. The Company passes through to its customers any changes in interchange or network fees. Gross processing revenue also includes fees for servicing American Express accounts, customer service fees, fees for processing chargebacks, termination fees on terminated contracts, gift and loyalty card fees, fees generated by our Heartland School Solutions business, and other miscellaneous revenue. Payroll processing revenue includes periodic and annual fees charged by HPC for payroll processing services, and interest earned from investing tax impound funds held for our customers. Revenue is recorded as bankcard and other processing transactions are processed or payroll services are performed.
Equipment-related income includes revenues from the sale, rental and deployment of bankcard and check processing terminals, from the sale of hardware, software and associated services for prepaid card and stored-value card payment systems, and campus payment solutions. Revenues are recorded at the time of shipment, or the provision of service.

Loss Contingencies and Legal ExpensesThe Company records a liability for loss contingencies when the liability is probable and the amount is reasonably estimable. Legal fees associated with loss contingencies are recorded when the legal fees are incurred.
The Company records recoveries from its insurance providers when cash is received from the provider.

Other Income (Expense)Other income (expense) consists of interest income on cash and investments, the interest cost on our borrowings, the gains or losses on the disposal of property and equipment and other non-operating income or expense items. For the six months ended June 30, 2012, other income (expense) was insignificant. For the six months ended June 30, 2011, other income (expense) included pre-tax charges of $0.8 million reflecting the costs (primarily accrued staff termination costs and fixed asset write downs) associated with closing of the Company's Johnson City, Tennessee service center.

Other income (expense) also includes the pre-tax charges related to the Provision for processing system intrusion costs.

Income Taxes—The Company accounts for income taxes by recognizing deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statements and the tax basis of assets and liabilities using enacted tax rates.
The provision for income taxes for the three and six months ended June 30, 2012 and 2011 and the resulting effective tax rates were as follows:
 
Three Months Ended June 30,
 
Six Months Ended
 June 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Provision for income taxes
$
10,975

 
$
7,505

 
$
19,474

 
$
12,314

Effective tax rate
37.9
%
 
37.7
%
 
38.0
%
 
37.8
%

The Company maintains valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In determining whether a valuation allowance is warranted, the Company evaluates factors such as prior earnings history, expected future earnings, carry back and carry forward periods and tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset.

The Company regularly evaluates its tax positions for additional unrecognized tax benefits and associated interest and penalties, if applicable. There are many factors that are considered when evaluating these tax positions including: interpretation of tax laws, recent tax litigation on a position, past audit or examination history, and subjective estimates and assumptions, which have been deemed reasonable by management. However, if management's estimates are not representative of actual outcomes, the Company's results could be materially impacted. The Company does not expect any material changes to unrecognized tax benefits in the next twelve months. At June 30, 2012, the reserve for unrecognized tax benefits related to uncertain tax positions was $2.2 million, of which $1.4 million would, if recognized, impact the effective tax rate. At December 31, 2011, the reserve for unrecognized tax benefits related to uncertain tax positions was $1.8 million, of which $1.1

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Table of Contents            
Heartland Payment Systems, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements—(Continued)
(unaudited)

million would, if recognized, impact the effective tax rate.

Share–Based Compensation—- In the fourth quarter of 2010, the Company's Board of Directors approved grants of 508,800 performance-based Restricted Share Units. These Restricted Share Units are share awards which would vest 50% in 2013, 25% in 2014, and 25% in 2015 only if, over the term of these Restricted Share Units, the following diluted earnings per share targets for the years ended December 31, 2012, 2013 and 2014 are achieved:
 
2012
2013
2014
Diluted Earnings Per Share (a)
$1.48
$1.74
$2.04
(a)
Calculated on a Pro Forma basis to exclude non-operating gains and losses, if any, and excluding the after-tax impact of Share-based Compensation Expense.

As of December 31, 2011, management determined that achieving these performance targets was probable to occur and began recording share-based compensation expense for these Restricted Share Units. The closing price of the Company's common stock on the grant date equals the grant date fair value of these nonvested Restricted Share Units awards and will be recognized as compensation expense over their vesting periods.

In the fourth quarter of 2011, the Company's Board of Directors approved grants of 164,808 performance-based Restricted Share Units. These Restricted Share Units are nonvested share awards which would vest 50% in 2014 and 50% in 2015 only if the Company achieves a diluted earnings per share compound annual growth rate ("CAGR") of seventeen percent (17%) for the two-year period ending December 31, 2013. Diluted earnings per share will be calculated on a Pro Forma basis to exclude non-operating gains and losses, if any, and exclude the after-tax impact of Share-based Compensation Expense. For each 1% that the CAGR actually achieved by the Company for the two year period ending on December 31, 2013 is above the 17% target, the number of shares underlying the Restricted Share Units awarded would be increased by 3.09%; provided, however, that the maximum increase in the number of shares that may be awarded is 100%. Likewise, for each 1% that the CAGR actually achieved by the Company for the two-year period ending on December 31, 2013 is below the 17% target, the number of shares underlying the Restricted Share Units awarded would be decreased by 1.13%. If the target CAGR is missed by 80% or more, then the number of shares awarded is zero.

As of June 30, 2012, management determined that achieving a CAGR for the two-year period ending December 31, 2013 which would result in earning the maximum 100% increase in the number of shares that may be awarded was probable to occur, and began recording share-based compensation expense for these Restricted Share Units based on 329,616 shares. The closing price of the Company's common stock on the grant date equals the grant date fair value of these nonvested Restricted Share Units awards and will be recognized as compensation expense over their vesting periods.

Diluted earnings per share for the six months ended June 30, 2012 and 2011 were computed based on the weighted average outstanding common shares plus equivalent shares assuming exercise of stock options and vesting of Restricted Share Units, where dilutive.

Common Stock Repurchases. On October 21, 2011, the Company's Board of Directors authorized the repurchase of up to $50 million worth of the Company's outstanding common stock. Repurchases under this program were made through the open market in accordance with applicable laws and regulations. The Company funded repurchases with cash flow from operations, existing cash on the balance sheet, and other sources including the proceeds of options exercises. At June 30, 2012, the Company had no amounts remaining under the October 21, 2011 authorization to repurchase its common stock. On July 27, 2012, the Company's Board of Directors authorized a new program to repurchase up to $50 million of the Company's outstanding common stock under essentially the same terms as the October 21, 2011 program.

Under the October 21, 2011 authorization from its Board of Directors, during the six months ended June 30, 2012 and the year ended December 31, 2011, respectively, the Company repurchased an aggregate of 1,157,440 shares of its common stock at a total cost of $33.2 million, at an average cost of $28.66 per share, and 778,889 shares of its common stock at a total cost of $16.8 million, at an average cost of $21.61 per share. No common stock was repurchased in the six months ended June 30, 2011.

Derivative Financial Instruments—The Company utilizes derivative instruments to manage interest rate risk on its borrowings under its Second Amended and Restated Credit Agreement dated November 24, 2010 with JPMorgan Chase Bank, N.A., as administrative agent, and certain lenders who are a party to the Credit Agreement. The Company recognizes the fair value of derivative financial instruments in the Condensed Consolidated Balance Sheets in investments, or accrued expenses

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Heartland Payment Systems, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements—(Continued)
(unaudited)

and other liabilities. Changes in fair value of derivative instruments are recognized immediately in earnings unless the derivative is designated and qualifies as a hedge of future cash flows. For derivatives that qualify as hedges of future cash flows, the effective portion of changes in fair value is recorded in other comprehensive income and reclassified into interest expense in the same periods during which the hedged item affects earnings. Any ineffectiveness of cash flow hedges would be recognized in Other income (expense) in the Condensed Consolidated Statements of Income and Comprehensive Income during the period of change.
In January 2011, the Company entered into fixed-pay amortizing interest rate swaps having an initial notional amount of $50 million as a hedge of future cash flows on the variable rate debt outstanding under its Term Credit Facility. These interest rate swaps convert the related notional amount of variable rate debt to fixed rate. At June 30, 2012, the remaining notional amount of these interest rate swaps was $38.8 million and the fair value of these interest rate swaps, $0.9 million, was recorded as a liability in accrued expenses and other liabilities. The related deferred tax benefit was $0.3 million. At December 31, 2011, the remaining notional amount of these interest rate swaps was $42.5 million and the fair value of these interest rate swaps, $0.9 million, was recorded as a liability in accrued expenses and other liabilities. The related deferred tax benefit was $0.3 million.

Foreign Currency—The Canadian dollar is the functional currency of CPOS, which operates in Canada. CPOS' revenues and expenses are translated at the average exchange rates prevailing during the period. The foreign currency assets and liabilities of CPOS are translated at the period-end rate of exchange. The resulting translation adjustment is allocated between the Company and CPOS' noncontrolling interests and is recorded as a component of other comprehensive income or noncontrolling interests in total equity. At June 30, 2012, the cumulative foreign currency translation reflected a loss of $0.3 million and at June 30, 2011 reflected a gain of $0.2 million. The Company intends to indefinitely reinvest undistributed earnings of CPOS and has not tax affected the cumulative foreign currency translation gain or loss. Determination of the amount of unrecognized deferred tax liability related to indefinitely reinvested profits is not material.
Noncontrolling Interests— Noncontrolling interests represent noncontrolling minority stockholders' share of the equity and after-tax net income or loss of consolidated subsidiaries. Noncontrolling minority stockholders' share of after-tax net income or loss of consolidated subsidiaries is included in Net income attributable to noncontrolling interests in the Condensed Consolidated Statement of Income and Comprehensive Income. The minority stockholders’ interests included in noncontrolling interests in the June 30, 2012 and December 31, 2011 Condensed Consolidated Balance Sheet were $0.9 million and $0.6 million, respectively, and reflect the original investments by these minority shareholders in the consolidated subsidiaries, along with their proportionate share of the earnings or losses of the subsidiaries.
Subsequent Events—The Company evaluated subsequent events with respect to the Consolidated Financial Statements as of and for the six months ended June 30, 2012.
New Accounting Pronouncements— In May 2011, the FASB issued an accounting standard update which addresses
changes to concepts regarding performing fair value measurements including: (i) the application of the highest and best use and
valuation premise; (ii) the valuation of an instrument classified in the reporting entity's shareholder equity; (iii) the valuation of
financial instruments that are managed within a portfolio; and (iv) the application of premiums and discounts. This update also
enhances disclosure requirements about fair value measurements, including providing information regarding Level 3
measurements such as quantitative information about unobservable inputs, further discussion of the valuation processes used
and assumption sensitivity analysis. The update is effective for interim and annual periods beginning after December 15, 2011.
The implementation of this update did not have a material effect on the Company's Consolidated Financial Statements.

In June 2011, the FASB issued an accounting standard update which amends the comprehensive income topic of the
current codification. The update eliminates the option to present the components of other comprehensive income as part of the
statement of changes in equity, and instead requires consecutive presentation of the statement of net income and other
comprehensive income either in a continuous statement of comprehensive income or in two separate but consecutive
statements. The update is effective for interim and annual periods beginning after December 15, 2011. The implementation of
this update did not have a material effect on the Company's Consolidated Financial Statements.

In September 2011, the FASB issued an accounting standard update on testing goodwill for impairment. This
guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not
that the fair value of a reporting unit is less than its carrying amount. If an entity determines that this is the case, it is required
to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure
the amount of goodwill impairment loss to be recognized for that reporting unit (if any). If an entity determines that the fair

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Heartland Payment Systems, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements—(Continued)
(unaudited)

value of a reporting unit is more than its carrying amount, the two-step goodwill impairment test is not required. The
amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after
December 15, 2011 (early adoption is permitted). The Company early adopted this update at December 31, 2011 and the implementation of this update did not have a material effect on the Company's Consolidated Financial Statements.

In December 2011, the FASB issued an accounting standard update on disclosures about offsetting assets and
liabilities. This guidance requires entities to disclose information about offsetting and related arrangements to enable users of
financial statements to understand the effect of those arrangements on the entity's financial position. The amendments require
enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either
(i) offset in accordance with current literature or (ii) subject to an enforceable master netting arrangement or similar agreement,
irrespective of whether they are offset in accordance with current literature. The update is effective for fiscal years, and interim
periods within those years, beginning on or after January 1, 2013. The implementation of this update is not expected to have a
material effect on the Company's Consolidated Financial Statements.

In July 2012, the FASB issued an accounting standard update on testing indefinite-lived intangible assets for impairment. This guidance will allow an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Under these amendments, an entity would not be required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines, based on qualitative assessment, that it is not more likely than not the indefinite-lived intangible asset is impaired. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The update is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 (early adoption is permitted). The Company is currently evaluating the impact of this update on the Company's consolidated financial statements.

3. Acquisitions

The Company initiated its Heartland School Solutions product through its acquisitions of the school solutions businesses operated by Lunchbox, Comalex, mySchoolBucks, School-Link Technologies and Lunch Byte Systems. Lunchbox, Comalex, mySchoolBucks, School-Link Technologies and Lunch Byte Systems, Inc. serve approximately 4,400, 3,700, 900, 10,000, and 10,000 schools, respectively. The combined Heartland School Solutions develops, manufactures, sells, services and maintains computer software designed to facilitate accounting and management functions of school food service operations. These acquisitions provide the Company with the ability to offer Internet payment capability to parents, which facilitates on-line deposits of funds into student accounts and enables schools to operate more efficiently. The Company plans to consolidate the individual platforms and products of Lunchbox, Comalex, mySchoolBucks, School-Link Technologies and Lunch Byte Systems, Inc. to optimize synergies, cost efficiencies and product offerings to customers. Pro forma results of operations have not been presented because the effect of these acquisitions was not material. The entire amount of goodwill is expected to be deductible for income tax reporting. Details of the individual acquisition transactions follow:

Lunchbox
On December 30, 2010, the Company purchased for a $7.7 million cash payment the net assets of the K to 12 school solutions business previously operated by Lunchbox. The acquisition was financed through a combination of cash on hand and our credit facilities. Pro forma results of operations have not been presented because the effect of the acquisition was not material. The transaction was accounted for under the purchase method of accounting. Beginning December 30, 2010, Lunchbox's results of operations are included in the Company's results of operations. The allocation of the total purchase price was as follows: $6.0 million to goodwill, $1.9 million to intangible assets and $0.2 million to net tangible liabilities.

Comalex, Inc.
On January 12, 2011, the Company purchased for a $6.1 million cash payment the net assets of Comalex, Inc. The acquisition was funded with cash on hand. Pro forma results of operations have not been presented because the effect of the acquisition was not material. The transaction was accounted for under the purchase method of accounting. Beginning January 12, 2011, Comalex's results of operations are included in the Company's results of operations. The allocation of the total purchase price was as follows: $4.9 million to goodwill, $1.8 million to intangible assets and $0.6 million to net tangible liabilities.

mySchoolBucks, LLC
On February 4, 2011, the Company purchased for a $1.5 million cash payment the net assets of mySchoolBucks, LLC. The acquisition was funded with cash on hand. Pro forma results of operations have not been presented because the effect of

12

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Heartland Payment Systems, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements—(Continued)
(unaudited)

the acquisition was not material. The transaction was accounted for under the purchase method of accounting. Beginning February 4, 2011, mySchoolBucks' results of operations are included in the Company's results of operations. The allocation of the total purchase price was as follows: $1.0 million to goodwill and $0.5 million to intangible assets.

School-Link Technologies, Inc.
On September 30, 2011, the Company purchased for a $15.6 million cash payment the net assets of School-Link Technologies, Inc. The acquisition was funded with cash on hand. The transaction was accounted for under the purchase method of accounting. Beginning October 1, 2011, School-Link's results of operations are included in the Company's results of operations. The allocation of the total purchase price was as follows: $28.7 million to goodwill, $4.3 million to intangible assets and $17.4 million to net tangible liabilities. The fair values of the School-Link Technologies' assets acquired and liabilities assumed were estimated as of their acquisition date. The fair values are preliminary, based on estimates, and may be adjusted as more information becomes available and valuations are finalized.

Lunch Byte Systems, Inc.
On June 29, 2012, the Company purchased for a $26.0 million cash payment the net assets of Lunch Byte Systems, Inc. (a.k.a. "Nutrikids"). The $26.0 million cash payment made on June 29, 2012 was funded through our Revolving Credit Facility and subsequently repaid with cash on hand in July 2012. Beginning July 1, 2012, Lunch Byte's results of operations will be included in the Company's results of operations. The transaction was accounted for under the purchase method of accounting. The allocation of the total purchase price was as follows: $15.2 million to goodwill, $7.0 million to intangible assets and $3.8 million to net tangible assets. The fair values of the Lunch Byte Systems' assets acquired and liabilities assumed were estimated as of their acquisition date. The fair values are preliminary, based on estimates, and may be adjusted as more information becomes available and valuations are finalized. The weighted average amortization life for the 2012 acquired finite lived intangible assets related to acquisition of Lunch Byte is as follows:
Weighted-average amortization life
 
 
(In years)
Customer relationships
 
6.0
Software
 
3.3
Non-compete agreements
 
5.0
Total
 
5.9

4. Receivables
A summary of receivables by major class was as follows at June 30, 2012 and December 31, 2011:
 
June 30,
2012
 
December 31,
2011
 
(In thousands)
Accounts receivable from merchants
$
165,784

 
$
151,228

Accounts receivable from bankcard networks
14,298

 
24,301

Accounts receivable from others
1,433

 
2,457

 
181,515

 
177,986

Less allowance for doubtful accounts
(1,419
)
 
(1,451
)
Total receivables, net
$
180,096

 
$
176,535

Included in accounts receivable from others are amounts due from employees which are $0.6 million at June 30, 2012 and December 31, 2011, respectively. Accounts receivable related to bankcard networks are primarily amounts which were pre-funded to merchants for processing Discover and American Express bankcard transactions as well as amounts due from Visa for PIN debit transactions.
A summary of the activity in the allowance for doubtful accounts for the three and six months ended June 30, 2012 and 2011 was as follows:

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Table of Contents            
Heartland Payment Systems, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements—(Continued)
(unaudited)

 
Three Months Ended
June 30,
 
Six Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Beginning balance
$
1,453

 
$
898

 
$
1,451

 
$
683

Additions to allowance
307

 
570

 
390

 
1,270

Charges against allowance
(341
)
 
(261
)
 
(422
)
 
(746
)
Ending balance
$
1,419

 
$
1,207

 
$
1,419

 
$
1,207


5. Funds Held for Payroll Customers and Investments
A summary of Funds held for payroll customers and investments, including the cost, gross unrealized gains (losses) and estimated fair value for investments held to maturity and investments available-for-sale by major security type and class of security were as follows at June 30, 2012 and December 31, 2011:
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(In thousands)
June 30, 2012
 
 
 
 
 
 
 
Funds Held for Payroll Customers:
 
 
 
 
 
 
 
Fixed income bond fund - available for sale
$
968

 
$
214

 
$

 
$
1,182

Cash held for payroll customers
47,677

 

 

 
47,677

Total Funds held for payroll customers
$
48,645

 
$
214

 
$

 
$
48,859

 
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
Investments held to maturity – Certificates of deposit (a)
$
3,711

 
$

 
$

 
$
3,711

Total investments
$
3,711

 
$

 
$

 
$
3,711

(a) Certificates of deposit have remaining terms ranging from 1 month to 14 months.

 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(In thousands)
December 31, 2011
 
 
 
 
 
 
 
Funds Held for Payroll Customers:
 
 
 
 
 
 
 
Fixed income bond fund - available for sale
$
968

 
$
190

 
$

 
$
1,158

Cash held for payroll customers
41,353

 

 

 
41,353

Total Funds held for payroll customers
$
42,321

 
$
190

 
$

 
$
42,511

 
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
Investments held to maturity – Certificates of deposit
$
2,505

 
$

 
$

 
$
2,505

Total investments
$
2,505

 
$

 
$

 
$
2,505


During the six months ended June 30, 2012 and during the twelve months ended December 31, 2011, the Company did not experience any other-than-temporary losses on its investments.

The maturity schedule of all available-for-sale debt securities and held to maturity investments along with amortized cost and estimated fair value as of June 30, 2012 is as follows:
 
Amortized
Cost
 
Estimated
Fair Value
 
(In thousands)
Due in one year or less
$
4,581

 
$
4,795

Due after one year through five years
98

 
98

 
$
4,679

 
$
4,893


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Table of Contents            
Heartland Payment Systems, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements—(Continued)
(unaudited)


6. Capitalized Customer Acquisition Costs, Net
A summary of net capitalized customer acquisition costs as of June 30, 2012 and December 31, 2011 was as follows:
 
June 30,
2012
 
December 31,
2011
 
(In thousands)
Capitalized signing bonuses
$
85,669

 
$
86,837

Less accumulated amortization
(43,149
)
 
(45,125
)
 
42,520

 
41,712

Capitalized customer deferred acquisition costs
36,767

 
36,564

Less accumulated amortization
(23,064
)
 
(23,262
)
 
13,703

 
13,302

Capitalized customer acquisition costs, net
$
56,223

 
$
55,014

A summary of the activity in capitalized customer acquisition costs, net for the three and six month periods ended June 30, 2012 and 2011 was as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Balance at beginning of period
$
55,339

 
$
57,316

 
$
55,014

 
$
59,251

Plus additions to:
 
 
 
 
 
 
 
Capitalized signing bonuses, net
7,907

 
7,045

 
15,461

 
14,161

Capitalized customer deferred acquisition costs
4,289

 
3,612

 
8,257

 
6,942

 
12,196

 
10,657

 
23,718

 
21,103

Less amortization expense on:
 
 
 
 
 
 
 
Capitalized signing bonuses, net
(7,332
)
 
(8,091
)
 
(14,653
)
 
(16,605
)
Capitalized customer deferred acquisition costs
(3,980
)
 
(3,928
)
 
(7,856
)
 
(7,795
)
 
(11,312
)
 
(12,019
)
 
(22,509
)
 
(24,400
)
Balance at end of period
$
56,223

 
$
55,954

 
$
56,223

 
$
55,954

Net signing bonus adjustments from estimated amounts to actual were $(0.8) million and $(0.2) million, respectively, for the three months ended June 30, 2012 and 2011, and $(1.5) million and $(0.4) million, respectively, for the six months ended June 30, 2012 and 2011. Net signing bonus adjustments are netted against additions in the table above. Negative signing bonus adjustments occur when the actual gross margin generated by the merchant contract during the first year is less than the estimated gross margin for that year, resulting in the overpayment of the up-front signing bonus and would be recovered from the relevant salesperson. Positive signing bonus adjustments result from the prior underpayment of signing bonuses and would be paid to the relevant salesperson.

Fully amortized signing bonuses of $8.4 million and $11.2 million were written off during the three month periods ended June 30, 2012 and 2011, respectively, and $16.4 million and $23.5 million respectively, were written off during the six month periods ended June 30, 2012 and 2011. In addition, fully amortized customer deferred acquisition costs of $4.2 million and $3.9 million, respectively, were written off during the three months ended June 30, 2012 and 2011, and $8.1 million and $7.7 million, respectively, were written off during the six months ended June 30, 2012 and 2011.

The Company believes that no impairment of capitalized customer acquisition costs has occurred as of June 30, 2012 and December 31, 2011.

7. Intangible Assets and Goodwill
Intangible Assets — Intangible assets consisted of the following as of June 30, 2012 and December 31, 2011:

15

Table of Contents            
Heartland Payment Systems, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements—(Continued)
(unaudited)

 
June 30, 2012
 
Amortization Life and Method
 
Gross
Assets
 
Accumulated
Amortization
 
Net Assets
 
 
(In thousands)
 
 
Finite Lived Assets:
 
 
 
 
 
 
 
Customer relationships
$
39,537

 
$
6,711

 
$
32,826

 
3 to 18 years—proportional cash flow
Merchant portfolio
3,345

 
2,084

 
1,261

 
7 years—proportional cash flow
Software
10,152

 
8,928

 
1,224

 
1 to 5 years—straight line
Non-compete agreements
3,323

 
1,346

 
1,977

 
3 to 5 years—straight line
Other
454

 
383

 
71

 
2 to 9 years—straight line
 
$
56,811

 
$
19,452

 
$
37,359

 
 

 
December 31, 2011
 
Amortization Life and Method
 
Gross
Assets
 
Accumulated
Amortization
 
Net Assets
 
 
(In thousands)
 
 
Finite Lived Assets:
 
 
 
 
 
 
 
Customer relationships
$
33,166

 
$
5,406

 
$
27,760

 
3 to 18 years—proportional cash flow
Merchant portfolio
3,345

 
1,819

 
1,526

 
7 years—proportional cash flow
Software
10,078

 
8,612

 
1,466

 
2 to 5 years—straight line
Non-compete agreements
2,794

 
1,126

 
1,668

 
3 to 5 years—straight line
Other
457

 
379

 
78

 
2 to 9 years—straight line
 
$
49,840

 
$
17,342

 
$
32,498

 
 
Amortization expense related to the intangible assets was $1.1 million and $1.2 million, respectively, for the three months ended June 30, 2012 and 2011 and $2.2 million and $2.7 million for the six months ended June 30, 2012 and 2011, respectively. The estimated remaining amortization expense related to intangible assets in twelve month increments is as follows:
For the Twelve Months Ended June 30,
 
(In thousands)
2013
$
6,041

2014
5,269

2015
4,582

2016
4,021

2017
2,926

Thereafter
14,520

 
$
37,359


Goodwill — The changes in the carrying amount of goodwill for the six months ended June 30, 2012 and 2011 were as follows:
 
Six Months Ended June 30,
 
2012
 
2011
 
(In thousands)
Beginning balance
$
103,399

 
$
68,319

Goodwill acquired during the period
15,231

 
5,987

Effects of foreign currency translation
(20
)
 
353

Other (a)

 
456

Ending balance
$
118,610

 
$
75,115

(a) Reflects adjustments to allocations of purchase price.

8. Processing Liabilities and Loss Reserves
The majority of our processing liabilities include funds in transit associated with bankcard and check processing. In addition, we maintain merchant deposits to offset potential liabilities from merchant chargeback processing. A summary of

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Table of Contents            
Heartland Payment Systems, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements—(Continued)
(unaudited)

processing liabilities and loss reserves was as follows at June 30, 2012 and December 31, 2011:
 
June 30, 2012
 
December 31, 2011
 
(In thousands)
Merchant bankcard processing
$
14,371

 
$
10,295

Check processing
12,239

 
8,594

Merchant deposits
8,642

 
9,839

Loss reserves
1,977

 
1,961

 
$
37,229

 
$
30,689


The Company's bankcard processing merchants have the liability for any charges properly reversed by the cardholder through a mechanism known as a chargeback. If the merchant is unable to pay this amount, the Company will be liable to the card brand networks for the reversed charges. The Company has determined that the fair value of its obligation to stand ready to perform is minimal. The Company requires personal guarantees and merchant deposits from certain merchants to minimize its obligation.

The card brand networks generally allow chargebacks up to four months after the later of the date the transaction is processed or the delivery of the product or service to the cardholder. As the majority of the Company's SME merchant transactions involve the delivery of the product or service at the time of the transaction, a reasonable basis for determining an estimate of the Company's exposure to chargebacks is the last four months' processing volume on the SME portfolio, which was $24.7 billion and $22.3 billion for the four months ended June 30, 2012 and December 31, 2011, respectively. However, for the four months ended June 30, 2012 and December 31, 2011, the Company was presented with $11.1 million and $12.2 million, respectively, in chargebacks by issuing banks. In the six months ended June 30, 2012 and 2011, the Company incurred merchant credit losses of $0.9 million and $2.9 million, respectively, on total SME bankcard dollar volumes processed of $35.3 billion and $32.9 billion, respectively. These credit losses are included in processing and servicing costs in the Company's Condensed Consolidated Statement of Income and Other Comprehensive Income.

The loss recorded by the Company for chargebacks associated with any individual merchant is typically small, due both to the relatively small size and the processing profile of the Company's SME merchants. However, from time to time the Company will encounter instances of merchant fraud, and the resulting chargeback losses may be considerably more significant to the Company. The Company has established a contingent reserve for estimated credit and fraud losses on its Condensed Consolidated Balance Sheet, amounting to $2.0 million at June 30, 2012 and at December 31, 2011. This reserve is determined by performing an analysis of the Company's historical loss experience applied to current processing volume and exposures.

A summary of the activity in the loss reserve for the three and six months ended June 30, 2012 and 2011 was as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Beginning balance
$
1,960

 
$
1,739

 
$
1,961

 
$
1,667

Additions to reserve
928

 
1,892

 
1,195

 
3,381

Charges against reserve (a)
(911
)
 
(1,775
)
 
(1,179
)
 
(3,192
)
Ending balance
$
1,977

 
$
1,856

 
$
1,977

 
$
1,856

(a)Included in these amounts are payroll segment losses of $36,000 and $20,000, respectively, for the three months ended June 30, 2012 and 2011, and $48,000 and $79,000, respectively, for the six months ended June 30, 2012 and 2011.

9. Accrued Buyout Liability
A summary of the accrued buyout liability was as follows as of June 30, 2012 and December 31, 2011:

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Table of Contents            
Heartland Payment Systems, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements—(Continued)
(unaudited)

 
June 30,
2012
 
December 31,
2011
 
(In thousands)
Vested Relationship Managers and sales managers
$
32,576

 
$
30,269

Unvested Relationship Managers and sales managers
874

 
1,389

 
33,450

 
31,658

Less current portion
(9,232
)
 
(8,104
)
Long-term portion of accrued buyout liability
$
24,218

 
$
23,554

In calculating the accrued buyout liability for unvested Relationship Managers and sales managers, the Company has assumed that 31% of the unvested Relationship Managers and sales managers will vest in the future, which represents the Company’s historical vesting rate. A 5% increase to 36% in the expected vesting rate would have increased the accrued buyout liability for unvested Relationship Managers and sales managers by $0.1 million at June 30, 2012 and December 31, 2011.
A summary of the activity in the accrued buyout liability for the three and six months ended June 30, 2012 and 2011 was as follows:
     
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Beginning balance
$
33,568

 
$
28,242

 
$
31,658

 
$
28,810

Increase in settlement obligation, net
4,240

 
3,723

 
8,447

 
6,330

Buyouts
(4,358
)
 
(4,101
)
 
(6,655
)
 
(7,276
)
Ending balance
$
33,450

 
$
27,864

 
$
33,450

 
$
27,864

    
10. Credit Facilities

On November 24, 2010, the Company entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, and certain lenders who are a party to the Credit Agreement. Credit extended under the Credit Agreement is guaranteed by the Company's subsidiaries and is secured by substantially all of its assets and the assets of its subsidiaries. The Credit Agreement amended and restated in its entirety the previous amended and restated credit agreement entered into on May 30, 2008, as amended (the “Previous Credit Agreement”), between the Company and certain of the parties to the Credit Agreement.

The Credit Agreement provides for a revolving credit facility in the aggregate amount of up to $50 million (the “Revolving Credit Facility”), of which up to $10 million may be used for the issuance of letters of credit and up to $5 million is available for swing line loans. Upon the prior approval of the administrative agent, the Company may increase the total revolving commitments by $50 million for a total commitment under the Revolving Credit Facility of $100 million. On July 20, 2012, the Company entered into Amendment No. 1 (the “Amendment”) to the Credit Agreement. The Amendment amends the Credit Agreement by, among other things, allowing the Company to increase the total Revolving Credit Facility commitments from $100 million to $150 million upon the prior approval of the administrative agent. The Revolving Credit Facility is available to the Company on a revolving basis until November 24, 2015. All principal and interest not previously paid on the Revolving Credit Facility will mature and be due and payable on November 24, 2015.

The Credit Agreement also provides for a term credit facility in the aggregate amount of up to $100 million (the “Term Credit Facility”). The Term Credit Facility requires amortization payments in the amount of $3.75 million for each fiscal quarter during the fiscal years ended December 31, 2011 and 2012, $5.0 million for each fiscal quarter during the fiscal years ended December 31, 2013 and 2014, and $7.5 million for each fiscal quarter during the period commencing on January 1, 2015 through the maturity date on November 24, 2015. All principal and interest not previously paid on the Term Credit Facility will mature and be due and payable on November 24, 2015. Amounts borrowed and repaid under the Term Credit Facility may not be re-borrowed. Principal payments due under the Term Credit Facility as of June 30, 2012 were as follows:


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Table of Contents            
Heartland Payment Systems, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements—(Continued)
(unaudited)

For the Twelve Months Ended June 30,
(In thousands)
2013
$
17,500

 
2014
20,000

 
2015
25,000

 
2016
15,000

 
Total
$
77,500

 

The Credit Agreement contains covenants which include: the Company's maintenance of certain leverage and fixed charge coverage ratios; limitations on its indebtedness, liens on its properties and assets, its investments in, and loans to other business units, its ability to enter into business combinations and asset sales; and certain other financial and non-financial covenants. These covenants also apply to certain of the Company's subsidiaries. The Company was in compliance with these covenants as of June 30, 2012 and expects it will remain in compliance with these covenants for at least the next twelve months.
Under the terms of the Credit Agreement, the Company may borrow, at its option, at interest rates equal to one, two, three or six month adjusted LIBOR rates, or equal to the greater of the prime rate, the federal funds rate plus 0.50% and the adjusted LIBOR rate plus 1%, in each case plus a margin determined by its current leverage ratio.

The weighted average interest rate at June 30, 2012 was 2.9%. Total fees and direct costs paid for the Credit Agreement through June 30, 2012 were $1.3 million. These costs are being amortized to interest expense over the life of the Credit Agreement.

At June 30, 2012, there was $77.5 million outstanding under the Term Credit Facility and $26.0 million outstanding under the Revolving Credit Facility. The $26.0 million on the Revolving Credit Facility was used to fund the acquisition of Lunch Byte and was repaid in July 2012.

11. Commitments and Contingencies
LitigationThe Company is involved in ordinary course legal proceedings, which include all claims, lawsuits, investigations and proceedings, including unasserted claims, which are probable of being asserted, arising in the ordinary course of business and otherwise not described below. The Company has considered all such ordinary course legal proceedings in formulating its disclosures and assessments. In the opinion of the Company, based on consultations with outside counsel, material losses in addition to amounts previously accrued are not considered reasonably possible in connection with these ordinary course legal proceedings.
The Company has also been subject to lawsuits, claims, and investigations which resulted from the Processing System Intrusion. See Contingencies below for a description of the Processing System Intrusion.

Contingencies—The Company collects and stores sensitive data about its merchant customers and bankcard holders. If the Company’s network security is breached or sensitive merchant or cardholder data is misappropriated, the Company could be exposed to assessments, fines or litigation costs.
On January 20, 2009, the Company publicly announced the Processing System Intrusion. The Processing System Intrusion involved malicious software that appears to have been used to collect in-transit, unencrypted payment card data while it was being processed by the Company during the transaction authorization process. See Note 1. Organization and Operations - Processing System Intrusion for total expenses incurred, including amounts paid for settlement of claims, related to the Processing System Intrusion.

The Company does not consider it a reasonable possibility that losses exceeding the amounts already recognized on the matters subject to the settlement agreements will be incurred. With regard to the unsettled claims related to the Processing System Intrusion, which the Company described in its Annual Report on Form 10-K for the year ended December 31, 2011, the Company determined material losses in addition to those previously expensed are not considered reasonably possible on any such claim disclosed. The Company is prepared to vigorously defend itself against any unsettled claims relating to the Processing System Intrusion that have been asserted against it and its sponsor banks to date. The Company feels it has strong defenses to all the claims that have been asserted against it and its sponsor banks relating to the Processing System Intrusion.

Leases—The Company leases various office spaces and certain equipment under operating leases with remaining terms ranging up to nine years. The majority of the office space lease agreements contain renewal options and generally

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Table of Contents            
Heartland Payment Systems, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements—(Continued)
(unaudited)

require the Company to pay certain operating expenses.

Future minimum lease payments for all non-cancelable operating leases as of June 30, 2012 were as follows:
 
 
For the Twelve Months Ended June 30,
(In thousands)

2013
$
7,658

2014
5,476

2015
3,535

2016
2,099

2017
2,108

Thereafter
3,870

Total future minimum lease payments (a)
$
24,746

(a) There were no material capital leases at June 30, 2012

Rent expense for leased facilities and equipment was $2.0 million and $2.2 million, respectively, for the three months ended June 30, 2012 and 2011, and $4.1 million and $4.4 million, respectively, for the six months ended June 30, 2012 and 2011.

Commitments—Certain officers of the Company have entered into employee confidential information and non-competition agreements under which they are entitled to severance pay equal to their base salary and medical benefits for twelve months and a pro-rated bonus in the event they are terminated by the Company other than for cause. There were no material payouts under these agreements in the six months ended June 30, 2012 and 2011.
The following table reflects the Company’s other significant contractual obligations, including leases as discussed above, as of June 30, 2012:
 
 
Payments Due by Period
Contractual Obligations
 
Total
 
Less than
1 year
 
1 to 3
Years
 
3 to 5
years
 
More
than 5
years
 
 
(In thousands)
Processing providers (a)
 
$
25,277

 
$
9,658

 
$
11,849

 
$
3,770

 
$

Telecommunications providers
 
2,182

 
2,182

 

 

 

Office and equipment leases
 
24,746

 
7,658

 
9,011

 
4,207

 
3,870

Term Credit Facility (b)
 
77,500

 
17,500

 
45,000

 
15,000

 

 
 
$
129,705

 
$
36,998

 
$
65,860

 
$
22,977

 
$
3,870

 
(a)
The Company has agreements with several third-party processors to provide to us on a non-exclusive basis payment processing and transmittal, transaction authorization and data capture services, and access to various reporting tools. Our agreements with third-party processors require the Company to submit a minimum monthly number of transactions or volume for processing. If the Company submits a number of transactions or volume that is lower than the minimum, it is required to pay the third-party processors the fees that they would have received if the Company had submitted the required minimum number or volume of transactions.
(b)
Interest rates on the Term Credit Facility are variable in nature; however, in January 2011 we entered into fixed-pay amortizing interest rate swaps having an initial notional amount of $50.0 million and a current notional amount of $38.8 million. If interest rates were to remain at the June 30, 2012 level, we would make interest payments of $2.4 million in the next 1 year, $2.7 million in the next 1 to 3 years and $0.1 million in the next 3 to 5 years or a total of $5.2 million including net settlements on the fixed-pay amortizing interest rate swaps. In addition, we had $26.0 million outstanding under our Revolving Credit Facility at June 30, 2012. The Revolving Credit Facility is available on a revolving basis until November 24, 2015.
12. Segments
The determination of the Company's business segments is based on how the Company monitors and manages the performance of its operations. The Company's operating segments are strategic business units that offer different products and services. They are managed separately because each business requires different marketing strategies, personnel skill sets and technology.

The Company has two reportable segments, as follows: (1) Card, which provides payment processing and related services for bankcard transactions and (2) Other. The Card segment also includes CPOS and Network Services. The Other segment includes Payroll, which provides payroll and related tax filing services, PrepaidCard, which provides prepaid card,

20

Table of Contents            
Heartland Payment Systems, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements—(Continued)
(unaudited)

stored-value card and loyalty and gift card solutions, and Heartland School Solutions, which provides point-of-sale platforms designed to facilitate food service operations. None of these businesses aggregated in the Other segments meet the defined operating thresholds for disclosing individually as reportable segments.
The Company allocates revenues, expenses, assets and liabilities to segments only where directly attributable. The unallocated corporate administration amounts are costs attributed to finance, corporate administration, human resources and corporate services. At June 30, 2012 and 2011, 30% and 37% respectively, of the Other segment's total assets were funds that the Company holds as a fiduciary in its Payroll services activities for payment to taxing authorities. At June 30, 2012 and 2011, 41% and 25% respectively, of the Other segment's total assets was goodwill. Reconciling items include eliminations of intercompany investments and receivables.
A summary of the Company’s segments for the three and six month periods ended June 30, 2012 and 2011 was as follows:
 
Card
Segment
 
Other
Segment
 
Unallocated
Corporate
Administration
Amounts
 
Reconciling
Items
 
Total
Amount
 
(In thousands)
Three Months Ended June 30, 2012
 
 
 
 
 
 
 
 
 
Total revenues
$
502,514

 
$
16,086

 
$

 
$
(79
)
 
$
518,521

Depreciation and amortization
5,990

 
1,286

 
55

 

 
7,331

Interest income
45

 

 

 

 
45

Interest expense
833

 
2

 

 
(79
)
 
756

Net income attributable to Heartland
19,570

 
1,948

 
(3,717
)
 

 
17,801

Total assets
647,956

 
161,516

 

 
(169,567
)
 
639,905

Three Months Ended June 30, 2011
 
 
 
 
 
 
 
 
 
Total revenues
$
513,632

 
$
12,395

 
$

 
$
(50
)
 
$
525,977

Depreciation and amortization
6,013

 
817

 
121

 

 
6,951

Interest income
41

 

 

 

 
41

Interest expense
1,165

 
1

 

 
(50
)
 
1,116

Net income attributable to Heartland
16,645

 
(148
)
 
(4,239
)
 

 
12,258

Total assets
647,216

 
85,540

 

 
(153,602
)
 
579,154

Six Months Ended June 30, 2012
 
 
 
 
 
 
 
 
 
Total revenues
$
949,733

 
$
39,416

 
$

 
$
(143
)
 
$
989,006

Depreciation and amortization
12,027

 
2,576

 
111

 

 
14,714

Interest income
160

 

 

 

 
160

Interest expense
1,745

 
4

 

 
(143
)
 
1,606

Net income attributable to Heartland
35,634

 
4,038

 
(8,117
)
 

 
31,555

Total assets
647,956

 
161,516

 

 
(169,567
)
 
639,905

Six Months Ended June 30, 2011
 
 
 
 
 
 
 
 
 
Total revenues
$
968,630

 
$
25,093

 
$

 
$
(100
)
 
$
993,623

Depreciation and amortization
12,159

 
1,618

 
246

 

 
14,023

Interest income
82

 

 

 

 
82

Interest expense
2,405

 
3